We establish generalized autoregressive conditional heteroscedasticity–dynamic conditional correlation (GARCH–DCC) and constant conditional correlation (CCC) copula model frameworks to study time-varying correlation among credit default swap (CDS) single names (SNs) and its impact on certain risk measures of CDS portfolios that consist of names from different sectors within the eurozone (EU) and North America (NA). Our purpose is to better understand the direction and magnitude of impacts on such risk measures due to correlation changes. This study covers 188 NA SNs and 145 EU SNs from January 2008 to August 2017. We find that correlations between CDS SNs go through different correlation regimes during this period. As a result, CDS portfolio risk measures in the form of value-at-risk or expected shortfall show sizable variation due to correlation regime shifts from historical means. Depending on the correlation level (high or low) and the portfolio type, risk measures could be either underestimated or overestimated. Both directional and balanced portfolios could experience a sizable underestimation of the margin depending on the direction in which the correlation deviates from historical means. Corresponding author: D. Li
本文建立了广义自回归条件异方差-动态条件相关(GARCH-DCC)和恒条件相关(CCC) copula模型框架，研究了信用违约互换(CDS)单名(SNs)之间的时变相关性及其对欧元区(EU)和北美(NA)不同行业名称组成的CDS投资组合某些风险度量的影响。我们的目的是为了更好地了解由于相关性变化对这些风险度量的影响的方向和程度。该研究涵盖了2008年1月至2017年8月期间188个NA SNs和145个EU SNs。我们发现CDS SNs之间的相关性在此期间经历了不同的相关机制。因此，CDS投资组合风险指标以风险价值或预期缺口的形式显示出相当大的变化，这是由于相关制度从历史手段转变而导致的。依赖于相关水平(高或低)和投资组合类型，风险度量可能被低估或高估。根据相关性偏离历史均值的方向，定向投资组合和平衡投资组合都可能出现相当大的边际低估。通讯作者:D. Li
{"title":"Study of correlation impact on credit default swap margin using a GARCH–DCC-copula framework","authors":"David X. Li, Roy M. Cheruvelil","doi":"10.21314/jfmi.2018.113","DOIUrl":"https://doi.org/10.21314/jfmi.2018.113","url":null,"abstract":"We establish generalized autoregressive conditional heteroscedasticity–dynamic conditional correlation (GARCH–DCC) and constant conditional correlation (CCC) copula model frameworks to study time-varying correlation among credit default swap (CDS) single names (SNs) and its impact on certain risk measures of CDS portfolios that consist of names from different sectors within the eurozone (EU) and North America (NA). Our purpose is to better understand the direction and magnitude of impacts on such risk measures due to correlation changes. This study covers 188 NA SNs and 145 EU SNs from January 2008 to August 2017. We find that correlations between CDS SNs go through different correlation regimes during this period. As a result, CDS portfolio risk measures in the form of value-at-risk or expected shortfall show sizable variation due to correlation regime shifts from historical means. Depending on the correlation level (high or low) and the portfolio type, risk measures could be either underestimated or overestimated. Both directional and balanced portfolios could experience a sizable underestimation of the margin depending on the direction in which the correlation deviates from historical means. Corresponding author: D. Li","PeriodicalId":41226,"journal":{"name":"Journal of Financial Market Infrastructures","volume":null,"pages":null},"PeriodicalIF":0.2,"publicationDate":"2019-10-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87086994","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We use block level data from the Bitcoin blockchain to estimate the impact of congestion and the USD price on average fee rates. The introduction and adoption of the Segwit protocol allows us to identify an aggregate demand curve for bitcoin transactions. We nd that Segwit has reduced fee revenue by about 80%. Fee revenue could be maximized at a blocksize of about 0.6 MB when Segwit adoption remains at 40%. At this blocksize, maximum fee revenue would be roughly 1/8 of the current block reward { or the equivalent of 1.6375 BTC as a reward in the long run given current prices and demand for Bitcoin.
{"title":"What drives Bitcoin fees? Using SegWit to assess Bitcoin’s long-run sustainability","authors":"C. Brown, Jonathan Chiu, Thorsten V. Koeppl","doi":"10.21314/jfmi.2021.014","DOIUrl":"https://doi.org/10.21314/jfmi.2021.014","url":null,"abstract":"We use block level data from the Bitcoin blockchain to estimate the impact of congestion and the USD price on average fee rates. The introduction and adoption of the Segwit protocol allows us to identify an aggregate demand curve for bitcoin transactions. We nd that Segwit has reduced fee revenue by about 80%. Fee revenue could be maximized at a blocksize of about 0.6 MB when Segwit adoption remains at 40%. At this blocksize, maximum fee revenue would be roughly 1/8 of the current block reward { or the equivalent of 1.6375 BTC as a reward in the long run given current prices and demand for Bitcoin.","PeriodicalId":41226,"journal":{"name":"Journal of Financial Market Infrastructures","volume":null,"pages":null},"PeriodicalIF":0.2,"publicationDate":"2019-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45382083","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Funding and credit risk with locally elliptical portfolio processes: an application to central counterparties","authors":"Leif Andersen, A. Dickinson","doi":"10.21314/JFMI.2018.112","DOIUrl":"https://doi.org/10.21314/JFMI.2018.112","url":null,"abstract":"","PeriodicalId":41226,"journal":{"name":"Journal of Financial Market Infrastructures","volume":null,"pages":null},"PeriodicalIF":0.2,"publicationDate":"2019-07-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78680565","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we aim to provide an interpretation of the legal issue of settlement finality in the context of proof-of-work distributed ledger technology, such as the Bitcoin network. Bitcoin intends to achieve certainty of settlement of its cryptocurrency in a trustless environment, without the need for intermediaries and without recourse to any legal provision. We extend earlier work on functional modeling of the theoretical settlement problem to include blockchains, and we provide a functional interpretation of settlement finality by introducing the notion of degree of settlement finality. In principle, we conclude that functional settlement finality in Bitcoin is preferred to legal enforceability. However, in practice, the Bitcoin blockchain is not suitable for the trusted environment of the regulated financial industry unless well-known issues - such as high energy consumption, low settlement speed, problems with scalability and the 51% attack risk - are resolved.
{"title":"Proof-of-work blockchains and settlement finality: a functional interpretation","authors":"Ruth Wandhöfer, R. Berndsen","doi":"10.21314/JFMI.2018.111","DOIUrl":"https://doi.org/10.21314/JFMI.2018.111","url":null,"abstract":"In this paper, we aim to provide an interpretation of the legal issue of settlement finality in the context of proof-of-work distributed ledger technology, such as the Bitcoin network. Bitcoin intends to achieve certainty of settlement of its cryptocurrency in a trustless environment, without the need for intermediaries and without recourse to any legal provision. We extend earlier work on functional modeling of the theoretical settlement problem to include blockchains, and we provide a functional interpretation of settlement finality by introducing the notion of degree of settlement finality. In principle, we conclude that functional settlement finality in Bitcoin is preferred to legal enforceability. However, in practice, the Bitcoin blockchain is not suitable for the trusted environment of the regulated financial industry unless well-known issues - such as high energy consumption, low settlement speed, problems with scalability and the 51% attack risk - are resolved.","PeriodicalId":41226,"journal":{"name":"Journal of Financial Market Infrastructures","volume":null,"pages":null},"PeriodicalIF":0.2,"publicationDate":"2019-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85788477","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Central counterparty anti-procyclicality tools: a closer assessment","authors":"A. Maruyama, F. Cerezetti","doi":"10.21314/JFMI.2018.110","DOIUrl":"https://doi.org/10.21314/JFMI.2018.110","url":null,"abstract":"","PeriodicalId":41226,"journal":{"name":"Journal of Financial Market Infrastructures","volume":null,"pages":null},"PeriodicalIF":0.2,"publicationDate":"2019-07-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73918610","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Procyclicality and risk-based access: valuing the embedded credit default swap of employing bilateral credit limits in financial market infrastructures","authors":"O. Bewaji","doi":"10.21314/JFMI.2018.109","DOIUrl":"https://doi.org/10.21314/JFMI.2018.109","url":null,"abstract":"","PeriodicalId":41226,"journal":{"name":"Journal of Financial Market Infrastructures","volume":null,"pages":null},"PeriodicalIF":0.2,"publicationDate":"2019-03-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87326733","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"What kind of payments settle in a real time gross settlement system? The case of Norges Bank’s settlement system (NBO)","authors":"Mats Bay Fevolden, Lyndsie Smith","doi":"10.21314/JFMI.2018.107","DOIUrl":"https://doi.org/10.21314/JFMI.2018.107","url":null,"abstract":"","PeriodicalId":41226,"journal":{"name":"Journal of Financial Market Infrastructures","volume":null,"pages":null},"PeriodicalIF":0.2,"publicationDate":"2019-03-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87406259","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Who pays? Who gains? Central counterparty resource provision in the post-Pittsburgh world","authors":"F. Cerezetti, Jorge Cruz Lopez, M. Manning","doi":"10.21314/jfmi.2018.108","DOIUrl":"https://doi.org/10.21314/jfmi.2018.108","url":null,"abstract":"","PeriodicalId":41226,"journal":{"name":"Journal of Financial Market Infrastructures","volume":null,"pages":null},"PeriodicalIF":0.2,"publicationDate":"2019-02-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80500968","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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